STRATEGIC PRODUCT MANAGEMENT. Copyright 2005/2006

Transcription

1 STRATEGIC PRODUCT MANAGEMENT Copyright 2005/2006

2 EXECUTIVE SUMMARY... 3 THE REDISCOVERY OF MARKETING... 3 CUSTOMER CENTRIC PRODUCT MANAGEMENT DRIVES REVENUE... 3 KNOWING THE CUSTOMER... 3 FUELING THE INNOVATION ENGINE... 4 DELIVERING THE WHOLE PRODUCT... 5 MOBILIZING THE WHOLE ORGANIZATION... 6 PRODUCT MANAGEMENT: A CORE COMPETENCY... 6 ORGANIZATION... 6 PROCESS... 7 METRICS... 8 MODELS... 8 TOOLS... 9 SUMMARY AND CONCLUSIONS MARKETING MECHANICS January 2006 MARKETING MECHANICS 2

3 Executive Summary Strategic Product Management drives revenue by mobilizing the entire company to deliver "whole product" value to the customer. Quantitative information about customers and markets enables effective communication across all functional organizations and fuels a company's innovation engine. This document outlines the best practices required to make Product Management a core competency with strategic scope and impact. The Rediscovery of Marketing Adroitly managed companies in the era following the great dot.com experiment are benefiting from two major conceptual shifts: 1) the rediscovery of the principle that all marketing activities must be directly related to driving revenue, and 2) the realization that information, knowledge and know-how form a significant part of a company's intellectual property and competitive advantage. Both of these trends are contributing to a new emphasis on product management as the phased processes -- generating new product ideas, bringing them to market, and transitioning between old and new products -- through which a company manages its product portfolio. Customer Centric Product Management Drives Revenue The drive for revenue begins with the decision to place delivering value to customers at the center of all company activities. For Product Management this means four things: 1) knowing the customer, 2) fueling the innovation engine 3) delivering the "whole product" and 4) mobilizing the whole organization. Knowing the Customer At first glance, "knowing the customer" might seem to be a platitude that receives a moment of reverence whenever mentioned, but has little to do with actual day-to-day business activities. After all, what executive would admit to not knowing the company's customers? Moreover, isn't it expected that Sales, Marketing, and Customer Support personnel can put a human face on the company's revenue sources? However, in this information age, the most effective companies take "knowing the customer" beyond the human scale of personal interactions; they form models of markets and customer types that change and adapt at January 2006 MARKETING MECHANICS 3

4 the same speed that customers themselves develop new preferences, adopt new technologies and change their way of doing business. Market segmentation and the targeting of products to meet customer demand must be ongoing, feedback-driven activities that test major assumptions against new information. This demands a level of quantitative sophistication that wasn't thought to be practical or even necessary ten years ago. Today, Marketing is beginning to operate very much like science: the process of observing some aspect of the world, developing a model to enable the formulation of hypotheses about future behavior, and gathering new data to test these hypotheses. In some cases customer relationship management systems, business intelligence software and Internet management software are generating enormous quantities of revealed preference data 1. Yahoo, for example, generates approximately 10 terabytes of customer information each day 2. This quantity of data defies easy characterization, and is useless if it sits unexamined in a database. Consequently, Yahoo, ebay, Google, Amazon and other Internet companies run daily experiments in which data mining and 1 The actual records of how customers behaved, what they bought, when etc. 2 Remark made by Dr. Usama Fayyad, Chief Data Officer and Sr. VP of Strategic Data Solutions at Yahoo at CSPA event 5/30/05 statistical tools are employed to search for relationships in the data. Quantitative models are developed, and hypotheses about customer behaviors are tested. Market size, market share, customer lifetime value estimates and other quantitative metrics are continually adjusted and refined in response to the results. The need to manage enormous amounts of data provides an easy justification for implementing quantitative techniques. However, even companies with relatively modest amounts of customer data can benefit from a quantitative outlook. Organizing information and assumptions into models enables all parties within the organization to calculate the effects of revenue-determining estimates. Documenting assumptions, uncertainties and guesses in a manner that permits testing hypotheses about a business makes it possible for all involved to develop a common assessment of the situation. This not only helps to mitigate the nonproductive emotion and rhetoric that often accompany marketing decisions, but facilitates a common understanding of customers and customer issues throughout the entire organization. Fueling the Innovation Engine Information fuels the innovation engine and drives the product development machine. Operating this machine requires the right January 2006 MARKETING MECHANICS 4

5 metrics to link strategy to external information (relating to markets, customers and competitors) and to the product machine must bear. A product management process that can shape and control the flow of information is necessary to provide development process. Information Strategy Innovation Engine answers to vital questions such as: How many, and at what rate must new products be developed to sustain corporate revenue targets? Where will new product ideas come from? What are the minimal ROI targets for the product portfolio? How should ROI be distributed over the portfolio? Delivering the Whole Product Even among the most technology driven of Silicon Valley Product Machine New Products companies there is a growing conviction that technology does not equal product. No matter how innovative, advanced or sophisticated it may be, the underlying technology is just one of many factors that support the customer (end user) product experience. Everything, beginning with advanced information or Figure 1; In a Well-Oiled Marketing Machine, Information Fuels the Innovation Engine and Drives the Definition of New Products In a well oiled marketing machine, strategy directly drives market and product requirements, places constraints on time-to-market, defines innovation capacity by setting funding levels for research and development efforts, and determines product life cycle by specifying how long products must continue to generate revenue. The feedback between strategy and product management first awareness of the product, through purchasing it, unwrapping it, deploying it, using it, maintaining it, fixing it, talking about it, sharing it, and retiring it are part of the user experience. For the most successful products, each aspect of this experience is designed through a product development process that matches requirements to desired experience and relates both to the product revenue stream. determines the load that the innovation engine and product January 2006 MARKETING MECHANICS 5

6 Mobilizing the Whole Organization Marketing and Product Development may have the primary responsibility for the "thingness" of a product, especially if it is tangible product; however the informed cooperation of the whole organization is required to deliver the customer product experience. This means that all of a company's functional organizations (Customer Support, Engineering, Finance, Marketing, Operations and Sales) must be involved in the product definition, development and delivery process. Even partners must be actively engaged in the process. (After all, external organizations would not be partners if they did not add value to the customer's perception of the whole product experience.) Each of these organizations interacts with the customer in a different way, and each organization contributes to, or enhances the value delivered to the customer, and hence the revenue stream generated by the product. Product Management: A Core Competency Product Management or Product Marketing: what's in a name? If the job is getting done it doesn't matter, but it does matter when things aren't working. Successful product management depends on effective organization, process, metrics, models and tools to support the function. Figure 2; The MARKETING MECHANICS Wheel Symbolizes a Smoothly Running Cross-Functional Product Process Focused on Delivering Value to Customers Organization We have seen successful product management machines operate from within various functional organizations, including Engineering. While this is somewhat akin to having the fox watch the hen house, it can work if the hens are vigilant enough. There is no January 2006 MARKETING MECHANICS 6

7 magic way to organize. What is necessary, however, is a customer-centric product management process with company-wide scope that is capable of managing a product's entire life cycle from the generation of new ideas, through the execution of product delivery, to an orderly product end-of-life. Process There is no single right way to do product management; no unique set of processes imposed on an organization from the outside will provide superior results in all circumstances. However, it does appear that effective product management can be established for any viable organization by adhering to certain fundamental principles: 1. The collective psychology of the company should be focused on adding value to the customer. When all the stakeholders in the product management process share similar views of a product as customer value, inter-organization decision making suffers less conflict. Appropriate early customer involvement in the product process helps assure this focus. 2. All functional organizations (Engineering, Finance, Marketing, Operations, Sales, Support etc.) as well as the company's major partners must be stakeholders in the process. This includes early participation in new product development, timely access to information for action and review, and accountability for product success. 3. The product development process must be organized with inputs, review cycles, go/no-go gates, and deliverables that effectively map to the company's basic business processes. These must be well documented to ensure company-wide understanding and accountability. 4. The product management process must be supported by an information structure that enables timely and accurate information to flow between phases and among stakeholders. Best practices in this area organize information into quantitative models that highlight rather than hide uncertainties. Communicating information via quantitative models has the additional benefit of reducing the unproductive emotional response that can accompany interactions among functional organizations. 5. The product management process itself must have appropriate metrics. There must be objective means for all of the participants, as well as executive management, to determine whether all is going well. The best practice in this area is to implement regular assessments to ensure that the product machine is running as smoothly as possible. January 2006 MARKETING MECHANICS 7

8 Strategy Concept Design Development Readiness Release Metrics Increasing Exposure of Product to Customers Figure 3; A Whole Product Process Supports Early and Increasing Customer Involvement In order to relate product management and other marketing activities to a revenue stream it is important to first establish meaningful metrics. Certain classes of metrics are applicable to almost any organization. These include: Market size and share metrics Customer satisfaction metrics Customer value metrics Metrics to measure the effectiveness of the product management process Product specific metrics, including the means to map product features to the satisfaction of requirements Executives in companies who have seen the positive impact of metrics on some of the more quantitative aspects of their business have already begun to investigate whether best practices from these departments might be suitably adapted to monitor general business activities. For example, in a recent address to the Six Sigma Society, Kenneth Lewis, CEO of the Bank of America remarked: What's been more challenging is figuring out how to confidently place meaningful metrics and hard-dollar values on the company's "softer" activities - service quality, marketing, public relations, personnel functions, research and development, to name just a few. Defining new ways to apply Six Sigma tools and methodologies to hard-to-measure activities like these is the next frontier for Six Sigma practitioners, as the discipline spreads further and further from its roots on the factory floor. 3 Exactly what metrics to implement depends on the company, its management style, its product development process and the nature of its business. Models As was mentioned above, the scientific process involves building models that support the formulation of testable hypotheses. Good business thinking is not qualitatively different from this. As with any business process, effective product management requires formulating and communicating conceptual models based on the best information available. Sometimes this information can be adequately captured and analyzed with spreadsheets. At other 3 Remarks at the International Society of Six Sigma Practitioners Symposium Kenneth D. Lewis, Chief Executive Officer and President, Bank of America October 26, 2004 Charlotte January 2006 MARKETING MECHANICS 8

9 times, the inherent complexity of the business situation leads to models that require more sophisticated conceptual tools. The use of specialized statistical analyses, optimization techniques, decision theory and other analytics have become an essential part of bringing products to market, and evaluating their ROI. Models enable information, both facts and assumptions, to be organized, evaluated and communicated in an objective fashion. Most importantly, good models help to quantify the uncertainty surrounding the business situation and provide decision makers with a reality-based appreciation of the risks. on how a company has organized its critical information infrastructure, there may be a number of viable alternatives. In single-product companies an ad hoc arrangement of spreadsheets and custom reports may be adequate. However, many companies have attempted to stretch ad hoc arrangements well beyond their capabilities. In such an environment, product management may be appropriate. 5 Regardless of the tool, the implementation and maintenance of a company-wide whole product management process is going to take thought, budget and a commitment to maintaining the support structure. Tools Even in an organization of modest size, effective whole product management requires the support of software tools to facilitate the flow of information throughout the organization. Market data, customer information, competitor data, requirements schedules, corporate strategy and financial information must be organized into a coherent platform for tracking, reporting, modeling and "what if" analysis 4. In some cases, modules from customer relationship management systems, business intelligence, analytics, requirements and bug tracking systems may be re-deployed to support a company wide product management process. Depending Figure 4; The Right Tools Help Turn Concepts into Products 4 Figure above used with permission of Accept Software 5 MARKETING MECHANICS recommends Accept Accept Software Corporation as a "best practices" application. January 2006 MARKETING MECHANICS 9

10 Summary and Conclusions Effective product management requires a corporate-wide 6 focus on delivering value to the customer. From the customer's point of view, products are often much more than mere packaged things or "widgets". The "whole product" includes everything that the customer perceives to be part of the product experience. ROI Multiple products or product lines not only introduce the complexity of managing several product life cycles in an environment of scarce resources, they also provide the opportunity to optimize ROI over multiple dimensions, for example customer type and market channel. Risk management becomes possible in a manner that directly links marketing activities to corporate financial goals. However, this benefit is only possible with a robust product management process that is integrated with the appropriate metrics and supported by adequate management tools. Customer/ Market Effective product management processes must include all the stakeholders in delivering this experience. Timely, objective information flowing among all stakeholders throughout all stages of the product life cycle is crucial to effectively managing the whole product. Quantitative models are frequently the best means of developing, organizing and communicating product management information. Channel Figure 5; Strategic Product Management Enables Portfolio Optimization Any effective, ongoing product management process must be supported with information tools that are appropriate for the size 6 and beyond if partners and other third parties play a significant part in the customers perception of the product experience January 2006 MARKETING MECHANICS 10

11 and scope of the product management effort. It is essential to develop metrics that measure the effectiveness of the product management process itself. There is no one right way to do product management, but there is a growing body of best practices. MARKETING MECHANICS can help your company assess the state of your product marketing / management machine and implement the best practices that are right for you. MARKETING MECHANICS We Build Marketing Machines SM MARKETING MECHANICS delivers best practices in Marketing and Product Management developed from the successes and failures of several Silicon Valley technology companies. 7 At the core of any successful corporation is an innovation engine and a product management and marketing machine that drives revenue, profits and company growth. Information fuels this engine and effective process keeps the machine running. By bringing the latest quantitative marketing information analysis techniques and best practices for whole product management to your company, we help you run your marketing machine at maximum efficiency and effectiveness. Acknowledgements MARKETING MECHANICS is indebted to Ms. Deborah Smead, PMP for her editing contributions. Her suggestions contributed greatly to the clarity of this document.. MARKETING MECHANICS helps build and tune your marketing machine for maximum growth, revenue, and profits. MARKETING MECHANICS info@mktgmech.com Agilent, Alantec, Intuit, Parallan Computer, Phase Metrics, Scotts Valley Instruments, Silicon Graphics, Virtual Microsystems and more. January 2006 MARKETING MECHANICS 11